Hong Kong stocks fall 6% on fears of Xi’s third-term lead China GDP data | CNN Business

Hong Kong
CNN Business
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Hong Kong shares had their worst day since the 2008 global financial crisis, just a day after Chinese leader Xi Jinping secured his iron grip at a major political meeting.

Alien investors scared by the result of the reorganization of the leadership of the Communist Party dumping Chinese stocks and the yuan despite stronger-than-expected GDP data releases. They worry that Xi’s tighter grip on power will lead to a sequel Beijing’s current policies and weaken the economy even more.

Hong Kong’s benchmark Hang Seng (HSI) fell 6.4% on Monday, the biggest daily drop since November 2008. The index closed at its lowest level. since April 2009.

The Hang Seng Tech index, which tracks the 30 largest technology companies listed in Hong Kong, fell 9.7 percent.

Shares of Alibaba ( BABA ) and Tencent ( TCEHY ) — the crown jewels of China’s tech sector — each fell more than 11 percent. a total of $54 billion out of its stock market value.

China’s yuan weakened sharply and hit a new 14-year low against the US dollar in onshore markets. In offshore markets, where it can trade more freely, the currency fell 0.8% and hovered near its weakest level on record.

The the sharp sell-off came a day after the ruling Communist Party unveiled its new leadership for the next five years. In addition to securing an unprecedented third term as party chief, Xi filled the new leadership team with staunch loyalists.

Several senior officials who have supported market reforms and economic opening were missing from the new top team, raising concerns about the future direction of the country and its relations with the United States. The ousted included Premier Li Keqiang, Vice Premier Liu He and Central Bank Governor Yi Gang.

“It appears that the leadership change spooked foreign investors to unload their Chinese investments, prompting a strong sell-off in Hong Kong-listed Chinese stocks,” said Ken Cheung, head of Asia currency strategy at Mizuho Bank.

“The Politburo Standing Committee, which is made up of close allies of President Xi, is understood by market participants to consolidate President Xi’s power and continue his policies,” he added.

The possibility that policies such as Zero-Covid, which has led to large-scale lockdowns to contain the virus, and “Shared Prosperity” – Xi’s push to share wealth – could be escalated was a cause for concern, Cheung said.

Mitul Kotecha, head of emerging markets strategy at TD Securities, also pointed out that the disappearance of reform-minded officials under the new leadership bodes ill for the future of China’s private sector.

“The resignation of questionable officials and reformers from the Politburo Standing Committee and their replacement by Xi’s allies suggests that ‘Common Prosperity’ is an overwhelming push by officials,” Kotecha said.

Under the banner of the “Common Prosperity” campaign, Beijing launched a sweeping crackdown on the country’s private enterprise, shaking nearly every industry to its core.

“The [market] In our view, the reaction is consistent with the reduction of significant incentives or changes related to the zero-Covid policy. Overall, the opportunities for growth to pick up again are limited, Kotecha said.

In China’s tightly controlled domestic market, the benchmark Shanghai Composite index fell by 2%. The tech-heavy Shenzhen component index fell 2.1%.

The market downturn came despite the publication of economic data that exceeded expectations.

China’s economy grew in the third quarter by 3.9 percent year-on-year, according to the Statistics Office. In a Reuters poll, economists expected a 3.4 percent increase.

The GDP data marked a pick-up from the 0.4 percent growth in the second quarter, when China’s economy suffered from widespread Covid lockdowns. Shanghai, the country’s financial center and a key hub for world trade, was shut down for two months in April and May.

However, the growth rate was still below the official target set by the government earlier this year.

“The outlook remains bleak,” said Julian Evans-Pritchard, chief China economist at Capital Economics, in a research note on Monday.

“China is not expected to reverse its zero-Covid policy in the near future, and we do not expect any significant relaxation before 2024,” he added.

Coupled with the continued weakening of the global economy and the ongoing downturn in China’s property market, all headwinds will continue to put pressure on China’s economy, he said.

Evans-Pritchard expected China’s official GDP to grow by just 2.5 percent this year and 3.5 percent in 2023.

Monday’s GDP data was originally scheduled to be released on Oct. 18 during the Chinese Communist Party Congress, but was postponed without explanation.